Under The Microscope - Documenting The End Of LIBOR

2021 has recently been ear-marked as the date when LIBOR (also known as the London Interbank Offered Rate) will be wound down. As work starts on finding a suitable replacement rate, where does that leave loan agreements?

Until current LIBOR is permanently discontinued, the effect is negligible, as interest calculated by reference to LIBOR will still function in the same way. However, once LIBOR ceases to be permanently available, there are two key questions:

1. What will replace it?
2. Will lenders be able to calculate interest with certainty?

LIBOR's replacement

Work has started on seeking LIBOR replacements both in the UK and overseas, but that's likely to be a long process. In the meantime, interest rate calculation mechanics in loan agreements are likely to come under closer scrutiny.